Economics as a discipline doesn’t concern itself with the vulgar notion of money.
Rather, as a way of thinking, economics provides a framework that enables us to examine fundamental truths:
- Humans want stuff.
- What we want most is almost always in short supply.
- What we want very often must be produced.
- What we produce and consume must somehow be peacefully allocated between competing parties and interests.
No matter your technical training and expertise, if you work in government as a solver of problems, then at some stage you’re going to face the task of allocating goods and services between competing interests.
And the concern of economics, in this environment, is about initiatives that increase social welfare.“For any identified problem the onus on policy analysts is to demonstrate that a harm exists and that proposed interventions would result in a net benefit.”
These days, in a world gone crazy with popularists and demagogues, economics—like science, like law—seems to be so, so, old-fashioned.
In the place of complex analysis, facts and logical arguments, we have become addicted to yelling. The siren call of populism is so seductive, triggering a dopamine response that is addictive.
Since Adam Smith wrote The Wealth of Nations, economists have been thinking about notion of the ‘invisible hand’ and how markets work to maximise social welfare.
But they have been also thinking about what happens when markets fail or when the power of individual companies results in higher prices and degraded services.
And some refined economic thinking has been translated by government into policy action.
Economics has value only because, as an analytical framework, it offers insights that help us carefully examine and address complex policy problems. Thinking as an economist, therefore, is valuable only to the extent that our thinking is clear, honest and courageous and that we follow the data, examine biases and test assumptions.
Economics complements rather than replaces other frameworks. For example, solutions to global warming critically depend on science and our understanding of astonishingly complex physical and ecological systems. Economics, on the other hand, enables us to ask and possibly answer questions like:
- What are the direct and indirect costs of implementing a particular intervention to reduce anthropogenic greenhouse gas emissions?
- What is the least-cost intervention?
- Do the direct and indirect benefits of intervention outweigh the direct and indirect costs?
- Who pays, both directly and indirectly? That is, what are the equity considerations associated with a particular intervention?
For any identified problem the onus on policy analysts is to demonstrate that a harm exists and that proposed interventions would result in a net benefit.
In our work, therefore, the honourable course of action is to reject thinking that is cheap, popular and nasty and, use a coherent framework for thinking—of which economics is one.
That way, if we’re ambushed by a populist, at least we can say that we didn’t go down without a fight.
Chas Savage worked as a professional economist in the Australian Public Service for almost ten years, specialising in microeconomic reform and industry change.
During this time he was an economic adviser to several Commonwealth ministers and a Commonwealth treasurer and contributed to the economic reforms that were introduced by the Australian Government in the 1980s and 1990s.
Chas is the founder and Chief Executive Officer of Ethos CRS. Ethos CRS provide capability building services to the public, private and not-for-profit sectors.